By Brad Feld (Managing Director, Foundry Group) Editor's note: This is a continuation from last week's introduction to cap tables.
When we were last with our SayAhh cofounders, they had implemented an accounting system and Jane had contributed $50,000 for a 55/45% equity split. This week we introduce two of SayAhh’s key accounting documents: the Balance Sheet (BS) and Statement of Cash Flows (SCF) showing how this investment is accounted for.
The investments by the founders created two transactions. Since SayAhh is a C corporation that is incorporated in Delaware, they decided to have a very low non-zero par value for their shares, set at $0.00001, to prevent higher franchise stock taxes.
Thus for the 10M shares issued to the them, Jane invests $55 and Dick invests $45. Jane also invests $50,000 as previously agreed. These deposits increase the checking account balance and also the equity accounts, and results in a solvent company and a decent starting bank balance.
Below is the Balance Sheet as of 8/21/11. Fred Wilson’s MBA Mondays series shows how to think about the balance sheet –- namely as a picture of the company at a point in time.
» Read the full post at Feld Thoughts.
Editor's note: Brad Feld blogs on Finance Fridays -- This week he introduces the concept of the Balance Sheet and Cash Flows. Brad takes a case study approach to set up all of the pieces before getting into the messy guts. Stay tuned for next week's Finance Friday! About thte guest blogger: Brad Feld has been an early stage investor and entrepreneur for over twenty years. Prior to co-founding Foundry Group, he co-founded Mobius Venture Capital and, prior to that, founded Intensity Ventures. Brad is also a co-founder of TechStars. In addition to his investing efforts, Brad has been active with several non-profit organizations and currently is chairman of the National Center for Women & Information Technology. He blogs at www.feld.com and www.askthevc.com.